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Update on the New Form 1099-K Rules: Q & ASaratr E, Mooney, Webster, Chamberlain & Bean, LLF, Washington, DC

**i*hir article provides an update|* to our October 2OtO article€ regardingthe new IRS Form

1099-K reporting rules for payments ::

made in settlement of credit cardlransactions. This article follows a Q& A format in order to make the infor-mation as user-friendly as possible andto highlight a few recent "real world" ,

inquiries from members regarding thepractical impact of this new reportingobligation on the industry.

Who has to file the new Form I099-Kfor credit card transactions?

1. Generally, banks and other :

companies (such as PayPaI) that prcrcess

or settle credit card and olher electronic l

payments must issue the new Formf 099-K to report the gross amount .

a business receives from suchtransactions starting in calendaryear 201 1.

l.R.C. S6050W. A transportationcompany that accepts credit cards as

a form of payment should expect toreceive a Form 1099-K in early 2O12from its bank (or other entity that :

settles electronic payment transactions)reportingtotal gross receipts from :

credit card transactions processed

during the 2011 calendar year.2. There is a special "aggregate

payee" rule that requires a non-bankbusiness to issue a Form 1099-K reporting the gross amount ofproceeds of credit card transactionsthat it receives on behalf of anotherpayee and distributes to the payee.

For example, under this "aggregate

payee" rule, if a transportationcompany receives the proceeds ofcredit card transactions from its bank(or other entity that settles electronicpayment transactions), on behalf ofits independent contractor driverswho accept credit card payments,

and that transportation companvthen distributes the proceeds to thedriver, the transportation companymust issue a Form 1099-K to eachdriver reporting the gross proceedsfrom credit card payments. I.RC.

S6O50w(bX4)(A); Treas. Reg

S 1.60s0w-1 (d)(1); $ 1.6050w-1(e),Ex. 2 1.

Therefore, the transportationcompany will not only receive aForm 1099-K from its bank (or cardprocessor), but it will also have to filea Form 1099-K for each independentcontractor driver to whom it haspaid or credited amounts on accountof fares and tips paid by creditcard, reporting the gross amount(disregarding any lees paid by thedriver to the company for processingthe credit card charges) paid to theindependent contractor driver.

ls there a minimum number of creditcard transactiong or a minimumdollar amount before Form I O99-Kreporting is triggered?

No, there is no minimumthreshold on either the number ofcredit card transactions or the totaldollar amount that triggers the Form1099-K filing requirement for banks orbusinesses that fall under the special"aggregate payee'! rule discussedabove. One credit card transaction issulficient to trigger the Form 1099-K reporting obligation. The lawdoes provide a de minimis reportingthreshold - $20,000 and 200transactions - for "third party paymentnetworks." Third party paymentnetworks are companies like PayPal andAmazon that process payments for thetransfer of goods and services betweenbuyers and sellers over the Internet.The purpose of this de minimis rule isto exempt from reporting payments by

these networks to'occasional" sellers.However, lhe de minimis rule does notapply to credit card transactions or tothe "aggregate payee" requirement thata transportation company issue Forms1099-K to drivers who have acceptedcredit card transactions.

It is important that companieskeep accurate records rellecting theamount of credit card fares submittedby each driver in order to prepare andfile an accurate Form 1099-K for eachindependent contractor driver.

ls my company required to reportfares paid to drivers using companyaccount vouchers on Form I 099-K?

No. The requirement that acompany issue Forms 1099-K todrivers applies only to fares paid bycredit card, and does not apply to farespaid using a company voucher.

Does the Form 1099-K apply to me ifI only have employee drivers?

No. Companies who have employeedrivers and accept payment by creditcard will receive a Form 1099-K fromtheir merchant bank that processescredit card transactions, but are notrequired to issue Forms 1099-K totheir employee drivers. Amountspaid to' employee drivers, includingamounts attributable to payments bycredit cards, are instead required to bereported on ea,ch driver's Form W-2.

What i;rformation do I need torequest from nny drivers in order tocomplete tlre I'orm 1099-K?

In order to avoid the back-upwithholding rules, a company thatwill be required to issue Forms1099-K to its drivers should obtain a

completed and signed Form W-9 fromeach of its drivers. The driver mustprovide his Taxpayer ldentification

Continued on page 4

Taxicab, Limourine & Paratransit Association ' 320O Tower Oaks Boulevard, SuitJ jlO, nocm, uO ZOgs2 . (3Ol ) 9ga-szOo

Update on the New Form 1099-K Rules: Q A AContinued from page 1

Number (Social Security Number orEmployment Identification Number(EII\|, if applicable) on the FormW-9. The IRS provides instructionsregarding whether a driver shouldreport his EIN or SSN whencompleting the Form W-9.

lf a driver pays his rent (leasepayment) with his personal creditcard, is this transaction reportable onForm 1099-K?

Yes. This type oftransactionwould be reportable by the bank thatprocesses credit card payments for thetransportation company. The bank willissue a Form 1099-K to the companyreporting the gross amount of proceedsof credit card transactions settledduring each calendar year.

lf a corporate business pays itsmonthly invoice/statement witha credit card, is this transactionreportable on Form I099-K?

Yes. This type of transactionwould be reportable by the bank thatprocesses credit card payments for thetransportation company just like thecredit card transaction above betweenthe driver and the company. Thebank will issue a Form 1099-K to thecompany reporting the gross amount ofproceeds of all credit card transactionssettled during each calendar year.

lf a customer purchases a prepaidcab fare card (e.g., a gift card) with

a credit card, is this transactionreportable on Form 1099-K?

Yes. This type of transaction wouldalso be reportable by the bank thatprocesses credit card payments for thetransportation company. A prepaid cabfare card - gift card - is treated like acredit card transaction for purposes ofthe Form 1099-K rules. The bank willissue a Form 1099-K to the company,reporting the gross amount ofproceedsfrom all credit card transactions setfledduring each calendar year. In turn, atransportation company will issue aForm 1099-K for each independentcontractor driver to whom it has paidor credited amounts on account offares and tips paid by credit card,reporting the gross amount of creditcard fares (including prepaid cab farecards) paid to the driver. Of course, thecompany is never required to issue aForm 1099-K to a passenger.

lf my company issues a credVdebitcard to a driver as an alternative formof paymenVreimbursement, is thisa transaction reportable on Form1099-K?

No. A transportation companydoes not have a Form 1099-Kreporting obligation for merely issuinga crediVdebit card to a driver in lieuofcash or check. In addition, cashadvances on credit cards and debitcard withdrawals from ATMs are not

treated as payment card transactionsand therefore are not reportable onForm 1099-K

If a driver uses the credit/debit card at an establishment thataccepts payment cards then this typeof transaction would be reportableby the bank that processes creditcard payments for the merchant.The bank will issue a Form 1099-Kto the merchant reporting the grossamount of proceeds from all creditcard transactions settled during thecalendar year.

Editorial Nots TLPA members

should consult with their own accountantsor legal counsel regarding the effect ofthe Form 1O99-K information reportingrequirements on their companies. I

Executive CommitteeTakes ActionContinued from page 3

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